Omnichannel Buying Forces Changes in DC Construction

Online shopping

2013 marked another year in the slow recovery that officially started in 2010. After relatively nominal growth in previous years, industrial real estate market indices showed 5 to 7 percent growth in 2013 demand and corresponding rental costs, according to CBRE and Prologis research. In large measure, these upward movements are the result of much larger global supply chain trends fueled by consumer and business demand and expectations.

Cyber Monday SalesCyber Monday sales, 2010-2013.

Notably, “Cyber Monday,” the first Monday after Thanksgiving, may be the new perennial focal point for retailers and, in turn, for the supply chain and those who serve it. Consumers shattered records, spending $2.3 billion on Cyber Monday, with sales reportedly growing 18 percent year-over-year. That compares to nominal or flat growth across traditional retail sectors.

What does this mean for supply chains? What about “big-box” distribution projects? Let’s take a closer look.

E-Commerce, Retail and B2B

Clearly, consumers now expect more from the global supply chain without fully understanding the true implications. The new omnichannel sourcing model calls for nimble, seamless fulfillment from stores, Web sites, warehouses and intermediaries. “The back end of this fulfillment mandates drastically different delivery models” said Mike Dunn, vice president of consulting firm Fortna.

Further, it forces much bigger strategic decisions around balancing service and inventory levels that weren’t imaginable two or three years ago. has clearly been the dominant force in this space, rolling 40 or more distribution centers and driving consumer expectations around online ordering and same-day delivery, including those futuristic drones.

Although some 46 percent of all shoppers looked online for their Cyber Monday purchases, Internet retail sales still represent less than 10 percent of all transactions. That said, what might we expect from the more traditional channels?

First, traditional retailers have been busy and successful converting their business models to include Internet sales and tap into the new consumer omnichannel expectations. Companies from Macy’s and Nordstrom’s to medical supplier Medline have restructured their facilities and supply chains to accommodate the explosive e-commerce growth. We see this traditional category as experiencing the most growth on a relative scale in the next two to three years. 

Second, it would be shortsighted to overlook the growth in the business-to-business logistics area. Fortna’s Helgi Leja points to the 20 percent growth in business-oriented e-commerce, ranging from industrial supplies and plumbing products to shipping supplies. The undercurrent points to strong growth for the construction industry and a resurgence of domestic manufacturing, especially in automotive and other durable goods.

The Human Element

One salient fact is for sure: All this growth in fulfillment needs must be executed by a more trained work force. Many distribution centers that have been deployed to support this particular area have two to three times the traditional labor requirement, and that is often overlooked. Surge labor to support seasonal peaks is increasingly difficult to identify and has become a determining factor in location selection.

In addition, this work force is aging and being asked to work in an automated, sophisticated environment, often without sufficient prior skills or training. Combined with the upcoming truck driver shortage, we see the staffing of these distribution centers as a potential point of concern, especially when coupled with other competing job opportunities in a recovering economy.

Blaine KelleyBlaine Kelley

Supply-Side Look

On a macro level, this growth across the supply chain shouldn’t come as a surprise. Lest we forget, domestic inventory levels in 2010 fell to their lowest levels since World War II and are undergoing a natural cyclical return. Logistics consultant Jaymie Forrest notes that such a depletion, combined with demanding service expectations, expose serious flaws and gaps in network design. This could lead to new modeling and more facilities closer to population centers.

To that end, we see inventory levels continuing to rise and, for the industrial real estate sector, a speculative building boom will return in key markets. Prologis expects net absorption, an indicator of demand of warehouse space, to return to 2006 levels of 200 million-plus square feet, underscoring the strong recovery. Don’t expect the demand to show up in every market, but in concentrated areas such as Southern California; Dallas; Columbus, Ohio; and other points most proximate to the consumers on the other end of that mouse click.

The Outlook

2013 was indeed another year marked by more demands to balance inventory and greater expectations for customer service. Demand most notably has come from phenomenal growth of the e-commerce industry. Big-box distribution centers are under construction and demand a trained work force, more automation and greater sophistication. Such demand also will put upward pressure on costs from real estate to fuel prices. 

2014 looks to be an exciting year of growth. Shippers will have to be nimble and innovative to stay in front of savvy consumers, while evaluating their inventory and network strategies with heightened scrutiny.   

Blaine Kelley is senior vice president of the Global Supply Chain Practice at CBRE. Contact him at

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